Exchange rate, interest rate and economic development in Nigeria (1980-2020)

This paper investigated exchange rate, interest rate, and economic development in Nigeria between 1980 and 2020. The study employed secondary data and sourced from the Central Bank of Nigeria (CBN) and World Bank Data Indicators covering periods of 1980 to 2020. The data were analyzed using correlation analysis, Johansen Co integration, and co integration regression Fully Modified ordnalist Square methods (FMOLS) were employed to established long run influence of exchange rate and interest rate on economic development. The study showed that long run relationship existed between exchange rate, interest rate, and economic development in Nigeria. Specifically, a number of results were obtained: in the case of HDI, economic development is negatively related to exchange rate; interest rate had significant relationship with economic development in Nigeria; and the interactive relationships of exchange rate and interest rate had a significant positive relationship with economic development. Using per capita income as a measurement of economic development revealed that; exchange rate had positive relationship withi economic development; the interactive effects of exchange rate and interest rate is positive and significant on economic development. Therefore, the study recommends that; proactive management of Nigeria’s exchange rate and interest rate must be the top priority of the country’s monetary authority. Therefore, the monetary authority through Central Bank of Nigeria should, as a matter of urgency, stabilize the nation’s exchange rate and improve the nation’s interest rate in a bid to attract investment and improve the nation’s capital accumulation necessary for long term economic development.